What's a Depression?

During one of my presentations last year at church, someone asked me for the definition of a depression.

In an informal sense, a recession is two consecutive quarters of negative economic growth, or decline in the Gross Domestic Product (GDP). (For more on GDP see my late January article, That GDP.)

Although there is no formal definition for a depression, most economists agree it is a prolonged slump with a 10% or more decline in real GDP.

With this in mind, here is a graph comparing the decline in real GDP for the current recession with other recessions since 1947. Depression is marked on the graph as -10% at the very bottom.


Even though the current recession is already one of the worst since 1947, it is only about 1/3 of the way to a depression (factoring in a likely bad 1st quarter, 2009).

The next graph compares the current recession, with estimated decline for the 1st quarter of this year, with the more severe recessions of the last century.


Keep this in mind so that you have proper context when you hear the next pessimistic prognostication about a Second Great Depression.